Learning the minimum wage lesson

Chantal Lovell

It’s always nice when we can learn from someone else’s mistakes before they become our own.

Seattle didn’t have this luxury when its city council voted last year to raise its minimum wage to $15 an hour, making it the municipality with the highest minimum wage in the country.

Fortunately for Nevada lawmakers, Seattle’s minimum-wage-hike-experience is showing them precisely what not to do here in the Silver State.

Though the $15/hour wage has yet to be fully implemented (the minimum wage will gradually increase to that rate in the coming years) the effect of a politically mandated wage floor is already being felt in Seattle, as well as in other cities that have followed its lead.

In Seattle, small businesses are reporting what anyone with an understanding of markets would expect: layoffs, closures, and price hikes

Ritu Shah-Burnham, a Zpizza franchise owner, says the looming minimum wage increases make doing business in Seattle impossible, so she’s closing up shop at the end of summer. Another restaurateur in Seattle is grappling with the wage hike in another way: passing the increase on to customers through a “wage equity surcharge” printed clearly on the patron’s bill.

If Seattle’s examples aren’t compelling enough, all one must do is look next door to California, where businesses are also feeling the crunch of minimum wage hike in select cities.

In Oakland — whose voters chose to increase the minimum wage in their city from $9 an hour to $12.25 an hour earlier this year — small businesses in Chinatown are realizing it’s difficult, if not impossible, to remain viable when public mood sets the wage floor instead of markets. As of March, four restaurants and six grocery stores in the neighborhood had closed up shop as a result of the minimum wage increase.

In the neighboring San Francisco, whose voters recently approved a gradual increase in the minimum wage to $15 an hour, book stores are reporting a struggle to grapple with increased cost while being unable to increase prices, which are clearly printed on books by publishers. Before making the decision to close up shop, at least two book stores in the city have turned to customers, asking them to sponsor their businesses to keep them open in the wake of the minimum wage hike.  

Comix Experience owner Brian Hibbs said he frequently hears from customers who supported raising the wage but were surprised to learn the move would hurt businesses like his.

Unfortunately, that misconception seems to be rampant in the minimum wage debate, in which emotion and rhetoric have taken the place of reason and fact. Too often, people get behind a minimum wage hike erroneously believing they’ll “stick it to the man,” that only big corporations will feel the pain, and that low-income earners will be catapulted into the middle class.

In reality, it’s the people working behind the counter, the mom supplementing her family’s income and the young adults getting their first taste of work experience who are devastated by minimum wage hikes. It’s the small businesses, the mom-and-pops and the franchise owners chasing a dream who bear the brunt of price increases. It’s those who are supposed to be helped by the minimum wage who most feel its sting.

Research has found that increasing the minimum wage has little-to-no effect on reducing poverty and that there’s no link between a minimum wage hike and economic growth. What it has shown is that the vast majority of minimum wage employees are not the sole income earners in their households, meaning minimum wage jobs provide an important supplement to family income. Furthermore, minimum wage jobs serve as an integral stepping stone for entry-level workers, two-thirds of whom receive a pay increase within the first year of employment.

The most important factor determining whether or not a person lives in poverty is whether or not that person is employed. While the minimum wage may sound good in theory, cities that have recently begun to raise their minimum wage dollars above the federal minimum are finding that it lease to job losses and unemployment, thereby doing the opposite of what was intended.    

It’s said that wise men learn from their mistakes, but wiser men learn from the mistakes of others. Let’s be the wiser man when it comes to the minimum wage.

A version of this article was originally published in Nevada Business.

Chantal Lovell is Communications Director at the Nevada Policy Research Institute, a nonpartisan, free market think tank.